Throughout the past decade, investing has seen exponential growth of individual investors. New customer-facing platforms and celebrity-backed online brokerage accounts have attracted new investors drawn to flashy graphics and endless datasets that help them feel like they are in control of their portfolios. Some thrive, but there can be a steep and costly learning curve – especially now.
Volatility in the stock market, a crypto crash and an uncertain economic environment can be overwhelming for new investors and many are simply getting out.
That provides opportunities for emerging fintech products that embrace a new generation of investors who seek simplicity, transparency and reliable returns. They aren’t looking for huge payouts. During these turbulent times, new investors value a safe, stable environment where they can control where their money is being invested while still supporting ethical companies so they can feel like they help make the world a
Those are pretty high standards, but after 30 years in commercial banking I believe this is the perfect moment for sustainable investing through commercial debt. This simple idea has the power to expand alternative investing on an institutional-quality scale while helping families growth wealth.
What is commercial private credit investing?
When larger companies need capital for renovations or new equipment, they can access bond markets and bank loans, but government regulations have forced most smaller businesses to turn to alternative financial institutions like AVANA Capital for short-term real estate commercial or business loans. Private lending has grown significantly in the last decade, providing more options for business owners and opening new doors for fintech services.
This rise in private lending for commercial growth also created a new path for alternative investing on an institutional-quality scale. Investors who diversify their portfolio by putting their money into commercial debt can reduce their overall risk, even during turbulent times and rising interest rates, and still see a reliable rate of return.
Commercial private credit investing also allows individuals to access markets that are otherwise closed to non-institutional investors. This may include funding for renewable energy projects or supporting small business owners who need capital for restructuring. This was the case during the pandemic when traditional sources of funding started to dry up, but businesses needed capital to renovate their space to align with new health and safety standards required by many local and state laws. Private lenders that weren’t hindered by federal guidelines suddenly became the go-to source that supported business owners with loan structures that helped them stay open during slow times and survive the pandemic.
Commercial private credit investors were behind it all, providing funding to private lenders that helped save businesses, create jobs, stimulate economies and get the world back on track.
Meeting expectations with EqualSeat™
The pandemic inspired my team to develop institutional-quality commercial debt investments that were safe, reliable and transparent. But it’s something we had been discussing for many years at AVANA Capital, where we’ve been supporting entrepreneurs and small business owners for 20 years. In that time, we’ve provided more than $1.7 billion in professionally underwritten commercial loans including construction loans, bridge loans, term loans and mezzanine loans.
We spent two years developing EqualSeat™ and I am proud to say it is an innovative commercial debt investment platform that levels the playing field with a low barrier to entry so individuals and accredited investors can co-invest with institutional investors in small business loans, diversify their portfolios and generate reliable monthly interest income. Our goal was to democratize interest earnings across all types of investors.
We built the platform based on what investors told us they wanted: simple navigation, short-term investments, transparency and predicted rates of return with dependable monthly cash flow. EqualSeat™ was created to be completely self-sufficient and provide new investment opportunities that have been fully funded by sister companies AVANA Capital and LendThrive™. All commercial debt opportunities are rigorously underwritten through AVANA Companies origination funnel of loans, so investors can be assured these are borrowers we have met and spoken to during the underwriting process.
The value of short-term investments was also important because it reduces illiquidity. We gave investors control of exactly how much and how long they want to invest their funds by presenting opportunities based on timelines as short as a few months or two years where they can diversify by types of loans and also geography.
For many investors, it’s equally important to support companies that share their values, so EqualSeat™ was developed to be an Environmental, Social and Governance (ESG) commercial debt investment platform. Investment opportunities spur economic growth, create jobs, increase clean energy resources and reduce reliance on fossil fuels, or provide support for people in the community. Investors can even calculate their social impact by seeing specific jobs created and clean energy generated as a result of their investment. There is still much work to be done in this area in terms of measuring against world class ESG standards which AVANA hopes to complete in the next 12 months.
Why invest in commercial debt now?
The big banks have long monopolized debt investment but using private lending channels to develop commercial private credit investment opportunities democratizes the process and allows anyone to participate. That is especially true for individual investors using EqualSeat™ who value a stable form of investing with varied types of risk-adjusted returns and risk that helps them achieve both short- and medium-term goals. Private credit investments tend to be more stable than other types of investments, providing a measure of security for investors. As millions of baby boomers head for retirement, having a reliable source of income can bring peace of mind in an otherwise stressful market.
Higher interest rates also make debt investing more attractive, because you’re basically lending money to a company in exchange for interest payments and return of principal when it matures. It provides a higher income than most other investments because the interest payments are fixed and are not affected by changes in market conditions.
Investors want to know where their money is going and how it’s being used.
Opposed to publicly traded companies, investing in small business commercial private credit is an investment in people. It creates jobs, supports communities and drives niche industries like hospitality, renewable energy and commercial real estate.
Looking to the future
Rethinking the way individual investors can reliably invest will continue to grow the financial industry. After more than 30 years in commercial banking, my experience has shown me that everyone deserves the opportunity to maximize their investment earnings and watch their capital grow. Developing modern-day alternatives to long-standing traditional means of investing has the potential to provide reliable returns for investors of any level. While financial opportunities continue to shift in the cyclical market, it is imperative that investors have a platform that can ensure strong risk-adjusted returns.
Providing access to reliable returns is essential in times of variance within traditional markets. Together as an industry, we should take responsibility to educate investors on new approaches to gain monthly income because it has the potential to benefit the community in its entirety.
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Sundip Patel is co-founder and chief executive officer of AVANA Companies, the holding company for the ESG fintech platform serving entrepreneurs and investors since 2002. Sundip oversees LendThrive™ and EqualSeat™ platforms for lending and investment respectively focused on supporting sustainable growth in communities. LendThrive™ was created to provide frictionless capital to small businesses in America while EqualSeat™ was created to democratize the returns from the small business loan investments. Sundip earned an MBA from the University of California, Irvine in 1998 and bachelors’ degrees in economics, finance and accounting from California State University at Fullerton in 1990.